Geithner's NY Fed told AIG to keep quiet on deals
Under Geithner, NY Fed told AIG to keep mum on billions paid to Goldman and others
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By Daniel Wagner, AP Business Writer , On Thursday January 7, 2010, 3:16 pm EST
WASHINGTON (AP) -- Controversial deals that sent billions of bailout dollars to Goldman Sachs and other banks were kept quiet under pressure from the Federal Reserve Bank of New York, then led by Treasury Secretary Timothy Geithner.
E-mails between lawyers for the New York Fed and bailed-out insurance conglomerate American International Group Inc. show AIG wanted to disclose some details about payments it made to banks, including Goldman and Deutsche Bank, to cancel financial deals.
But lawyers for the New York Fed, which engineered AIG's bailout with the Bush administration's Treasury Department, told AIG to remove the information from a draft.
A watchdog report has said Geithner and the New York Fed mismanaged the AIG rescue, potentially handing billions more than necessary to banks that have since recovered and are again paying record bonuses.
The New York Fed has countered that officials were focused on defusing the worst financial crisis in generations. It says officials were trying to protect the value of the taxpayer investment. And it says paying the banks less or sharing more information could have sparked a global financial collapse.
But lawmakers of both parties have criticized how Geithner and the New York Fed handled the AIG bailouts. They say Geithner went too easy on the Wall Street banks that helped elect him president of the New York Fed and has been too willing to rush to their aid.
The e-mails were provided by California Rep. Darrell Issa, the senior Republican on the House Committee on Oversight and Government Affairs. Issa said the information raised new doubts about Geithner's qualifications.
"This begs the question, knowing what we know now: Would he have even been confirmed?" he said in a statement.
The names of the banks that benefited from AIG's bailouts earlier were kept secret by the Fed's Board of Governors, which oversees the regional banks. Fed Vice Chairman Donald Kohn told lawmakers in March that identifying the banks could upend financial markets just as they were beginning to stabilize.
"We need AIG to be stable ... and I would be very concerned that if we started giving out the names of counterparties, people wouldn't want to do business with AIG," Kohn said.
But when the Fed did reveal which banks had gotten the money, and how much they got, there was little reaction in the markets.
Reacting to Thursday's news, Rep. Roy Blunt, R-Mo., claimed Geithner "and his staff were complicit in a scheme to cover up information they viewed as politically damaging."
But New York Fed spokesman Jack Gutt said the e-mail exchanges were typical of conversations between lawyers preparing financial disclosures. He said it was the responsibility of AIG's lawyers to decide what would be disclosed, regardless of pressure from the New York Fed lawyers.
Treasury spokeswoman Meg Reilly said in a statement that this part of the AIG bailout "is on track to be paid back in full with interest so that taxpayers will be made whole."
"Somehow that fact that the government's loan is 'above water' gets lost in all the consternation," she said.
The e-mails were reported earlier by Bloomberg News.
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